Posted on July 8, 2008 on the IUF’s Private Equity Buyout Watch
Gobal fund manager Schroders is launching an Agricultural Land Fund, only months after closing its USD 6 billion Alternative Solutions Agriculture Fund due to excessive investor demand.
Alternative Solutions, investing in grains, livestock, coffee, sugar, equities and financial instruments, had returned close to 50% since its launch in October 2006. In January this year, over 56% of the fund was allocated to commodity futures. “We closed the fund”, a Schroders’ spokesperson was quoted telling the UK press, “so that its performance objectives were not compromised by its size. Although capacity in the agriculture futures markets has increased from USD 40 billion to 200 billion in the last six to 12 months, it has not kept pace with investment demand for soft commodities.”
The new fund, to be listed on the London Stock Exchange in September, will target global agricultural land and land related industries through investment in private equity companies, farm management businesses and related funds.
Approximately 25 per cent of the investment will be in agricultural land-related equities and commodities.
Along with food commodity futures, agricultural land around the world has become a new magnet for speculative financial flows. In the US, despite the housing property crisis, soaring farmland values riding the ethanol boom have generated new investment vehicles and increased participation in existing vehicles by institutional investors. “The last six months I’ve definitely gotten a lot more calls from private equity managers and hedge funds”, said the head of Hancock Agricultural Investment Group over a year ago. The fund’s clients are exclusively pension funds and other institutional investors.
The influx of financial investment into agricultural land is global. Last month, Netherlands-based agrifood giant Louis Drefyfus Commodities raised USD 65 million for Aclyx Agro Ltd., its new.vehicle established to buy, operate and sell land in Latin America (chiefly Brazil). The funding is principally from Dreyfus’ own commodity fund and from AIG Brazil Special Situations Fund II, a Latin American private equity arm of the NYSE listed AIG Investments (American International Group) which was recently closed with US $691.9 million in investor capital.
According to the May 12 announcement by the Latin American Venture Capital Association, “Calyx Agro plans to capitalize on the region’s growing agribusiness sector and potential for farmland appreciation by acquiring land that is presently operating with low technology or used for livestock breeding. In turn, the company will seek to improve production yields, which is expected to ultimately drive a higher resale value of the land.
“We believe that productive farmland will continue to be in high demand driven by the world’s growing appetite for agricultural commodities and Latin America’s competitive position in global trade,” said Ana Vigon, Managing Director and Head of Latin America Private Equity at AIG Investments.
“The investment in Calyx Agro will be AIG Investments’ fourth in the Latin American agriculture sector, following investments in Falcon Farms, a premiere grower and distributor of fresh cut flowers with production based in Colombia, Ecuador, and Mexico, Frigorifico Mercosul, a leading Brazilian beef processor, and Fertilizantes Heringer, one of the largest fertilizer distributors in Brazil.”
The LAVA press release contains the following capsule summary of Dreyfus, one of the oldest privately-held global processors and grain traders: “Louis Dreyfus Commodities, one of the world’s leading commodity merchants and processors of agricultural products, has merchandised and traded bulk commodities in international markets since 1851. Louis Dreyfus Commodities owns or operates considerable industrial assets around the world to conduct its global trading and merchandising activities. As a result, Louis Dreyfus Commodities is consistently ranked as one of the world’s largest merchandisers of grains and oilseeds, is one of the three world’s largest producers of orange juice (15% global market share), is the third largest producer of sugar in Brazil, the world’s biggest exporting country, and is the largest trader and merchandiser of raw cotton in the world. The company is also a leader in the coffee, rice, metals and freight markets. Louis Dreyfus Commodities has an emerging worldwide presence in the expanding biofuels sector, including a leading position in the Brazilian ethanol market. Louis Dreyfus Commodities operates from five major regions (Argentina, Brazil, North America, Europe and Asia), and offices in Beijing, Buenos Aires, Delhi, Geneva, Sao Paulo, Singapore and Wilton (USA) serve as major coordination centers for merchandising activities. Louis Dreyfus Commodities is an affiliate of the Louis Dreyfus Group, an organization of diversified companies privately owned by the Louis-Dreyfus family. The global activities of Louis Dreyfus Commodities are vertically integrated under a holding company, Louis Dreyfus Commodities BV, which is based in the Netherlands.”
Private equity investment in South Asian food processing and agricultural land, previously focused on India (see “Buyouts Bomming in India’s Food Processing Sector”), has now widened into Pakistan. According to a May 13 report in the Financial Times, “One of the Middle East’s largest private equity companies has been quietly buying farmland in Pakistan as part of plans by the UAE to increase food security and to dampen inflation. Dubai-based Abraaj Capital says it is working with the UAE government on the strategic agribusiness investments in Pakistan.
“The government in Abu Dhabi has been holding talks with Islamabad about a framework for investment in its agricultural sector as it seeks to secure cheaper long-term supplies of basic foodstuffs such as wheat and rice.”